Acuity

Acuity 34: Absolute return strategies are not what they seem

November 14, 2016

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The promise of generating stable returns in both up and down markets feels like an attractive strategy for investors to adopt, and ‘absolute return’ funds have certainly attracted large sums of cash since the credit crisis.

Yet the reality of being able to deliver on this promise is far from convincing: strategies are varied, complex and hard to compare; fees are high, relative to sensible alternatives; and correlations to underlying assets – such as equities and bonds – are higher than might be expected.

A surprising proportion of funds have delivered absolute losses to investors over horizons of one year and even over three years.

At the end of the day, there are no risk-free returns above cash returns.